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Times Interest Earned
Interest expense is the interest charged on loans taken out by a company. The Times Interest Earned ratio indicates the amount that a company has available to pay or cover interest expenses. It measures the capacity of the company to pay interest on its long-term debts out of its earnings from operations. The Times Interest Earned Ratio formula is:
Earnings Before Interest and Taxes / Interest Expense
Times Interest Earned calculates the number of times that pre-tax profits cover interest charges. This ratio helps creditors to determine the ability of a company to meet its current interest charges without impairing normal operations.
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